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A security's price is positively dependent on two variables: the price of copper and the yen/dollar exchange rate. Suppose that the market price of risk for these variables is 0.5 and 0.1, respectively.
If the price of copper were held fixed, the volatility of the security would be 8% per annum; if the yen/dollar exchange rate were held fixed, the volatility of the security would be 12% per annum. The risk-free interest rate is 7% per annum. What is the expected rate of return from the security? If the two variables are uncorrelated with each other, what is the volatility of the security?
You are going to value Lauryn’s Doll Co. using the FCF model. After consulting various sources, you find that Lauryn has a reported equity beta of 1.4, a debt-to-equity ratio of .6, and a tax rate of 40 percent. Assume a risk-free rate of 4 percent a..
Electric generating and transmission equipment is placed in service at a cost of $3,100,000. It is expected to last 30 years with a salvage value of $250,000. What is the MACRS-GDS property class? Determine the depreciation deduction and the unrecove..
The total market value of BHP’s assets is $60,000,000. These assets are financed by $30,000,000 worth of issued bonds and $30,000,000 worth of issued ordinary shares. What is the WACC of BHP according to the above information?
A portfolio manager plans to use a Treasury bond futures contract to hedge a bond portfolio over the next three months. The portfolio is worth $100 million and will have a duration of 4.0 years in three months. Suppose that all rates increase over th..
In a rare moment of generosity, you give your nephew $100 on his first birthday. Your nephews mother, however, knows the time value of money, so she invests the money in a 20-year 7% CD. (At maturity the CD pays back the principal plus accumulated in..
Colt Systems will have EBIT this coming year of $33 million. It will also spend $14 million on total capital expenditures and increases in the net working capital, and have $8 million in depreciation expenses. Colt is currently an all equity firm wit..
An investment under consideration has a payback of eight years and a cost of $877,000. Assume the cash flows are conventional. If the required return is 10 percent, what is the worst-case NPV? (Negative amount should be indicated by a minus sign. Do ..
Starting to invest early for retirement increases the benefits of compound interest. If the discount (or interest) rate is positive, the future value of an expected series of payments will always exceed the present value of the same series.
For each of the following, compute the future value (Enter rounded answers as directed, but do not use rounded numbers in intermediate calculations. Round your answers to 2 decimal places (e.g., 32.16)): Present Value Years Interest Rate Future Value..
Harley Davidson purchases components from three suppliers. Components purchased from Supplier A are priced at $ 5 each and used at the rate of 206700 units per year. Components purchased from Supplier B are priced at $ 4 each and are used at the rate..
The us dollar equivalent is 0.3841 for the Brazilian real and 1.8759 for the U.K. pound. this means that
Consider an investment of 2/3 in C and 1/3 in D. - Call this new portfolio CCD. - Compute the variance, standard deviation, and market beta of CCD.
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